Service Tax - Taxability in respect of International Private Leased Circuit (IPCL)
A clarification has been sought from the Board on taxability of IPCL charges incurred in foreign currency by BPO/MNCs against receipt of services from the service provider situated outside India/group companies under reverse charge mechanism [Section 66A of the Finance Act, 1994 read with Rule 2 (1) (d) (iv) of the Service Tax Rules 1994].
Board explains:-
++ The activities are in the nature of Leased Circuit services presently covered under Telecommunication service. However, for getting classified under Telecommunication service, Section 65 (105 (zzzx) of the Finance Act, 1994 provides that the service should be provided by a Telegraph authority. Telecommunication service as defined under Section 65 (109a) covers services, which are provided by a person who has been granted a licence under the first proviso to sub-section (I) of section 4 of the Indian Telegraph Act, 1885. In this situation in the instant case since the service provider is located abroad, he is not covered under the definition given in Section 65 (109a). Thus the service provided by foreign vendors cannot be taxed under Telecommunication service.
++ Section 65 (105) (zzzq) read with Section 65 (104c) of the Finance Act, 1994, defines Business Support Service as services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.
So, the Board clarifies:-
The activity of receiving IPCL service from abroad is chargeable to Service Tax under Business Support Service [Section 65 (105)(zzzq) ibid] at the hands of recipients situated in India in terms of Section 66A of the Finance Act, 1994, read with Rule 2 (1) (d) (iv) of the Service Tax Rules. 1994 and provisions of Taxation of Services (Provided) From Outside India and Received in India, Rules 2006 apply.
Board wants pending issues to be decided accordingly.
But……
It seems DGCEI has booked a good number of cases and also recovered huge amount of service tax under reverse charge under " Banking and other Financial Services" on the commission paid to the foreign banks on ECBs (External Commercial Borrowings). It seems an officer in Bangalore just went through the information available with RBI and recovered around 500 crores and is considered a Hero.
Now, as per Section 65( 11),
(11) "banking company" has the meaning assigned to it in clause (a) of section 45 A of the Reserve Bank of India Act, 1934 (2 of 1934);
45A(a) of the RBI Act reads:
(a) ‘‘banking company'' means a banking company as defined in section 5 of the Banking Regulation Act, 1949], and includes the State Bank of India,
Section 5 of the Banking Regulation Act, 1949 reads:
(c) "banking company" means any company which transacts the business of banking [in India];
Applying the ratio of this latest clarification by the Board, a foreign bank cannot be called as banking company under 65(11). What will happen to those demands? can they claim refunds?
CBEC Letter F.No. 137/21/2011-Service Tax: Dated July 15 2011